Paulson Calls for Fed Regulation of Investment Banks
In the wake of last week’s near-collapse of the once-famed Bear Stearns investment bank, U.S. Treasury Secretary Henry Paulson is saying that such investment houses, like regular commercial banks, should be regulated by the federal government.
“In a speech to the U.S. Chamber of Commerce, Paulson said the Bush administration will soon release just such a blueprint in an effort to promote a smoother functioning of financial markets,” reports the Associated Press.
Especially now that the Federal Reserve has invoked emergency powers not used since the Great Depression to lend to investment banks at the same favorable rate it offers to commercial banks, such regulation is appropriate, Paulson says. Although he apparently didn’t offer many specific details about a possible regulatory approach, he suggested that Fed, the U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission might be involved.
However, Paulson seems to be calling for a lesser degree of regulation than applies to commercial banks, so long as their access to the Fed’s “discount window” for favorable lending terms remains occasional rather than constant, reports the New York Times. At the same time, if the Fed is lending to investment banks, it must have enough information to make “informed lending decisions,” the treasury secretary says.
Additional coverage:
Bloomberg: “Paulson Urges Broader Fed Oversight of Wall Street”
MarketWatch (Dow Jones): “Paulson can’t hold back regulation”
